Common Concerns When Obtaining Private Financing

Private (or hard money) financing can be a powerful tool for real estate investors in Maryland, Washington, DC, and Virginia. It allows you to act quickly, leverage opportunities that traditional lenders shy away from, and fund projects that build long-term wealth.

But—like with any financial commitment—you may have some questions or concerns. Below, we’ll walk through the most common issues borrowers raise when working with private lenders, and how we at New Funding Resources address them.

---

Will the lender deliver on the terms outlined in the Letter of Intent (LOI)?

Once you receive a Letter of Intent, you have every right to expect that the terms, charges, and costs will remain consistent at closing—provided you and the property meet the underwriting conditions outlined in the LOI. These conditions might include:

• Minimum after-repair value (ARV)
• Credit requirements
• A clear title
• A satisfactory survey or appraisal

At the very least, a reputable private lender should inform you promptly about any material changes and explain why they’re necessary.

Unlike consumer loans, private lenders are not legally required to provide three days’ advance notice of changes. Unfortunately, some lenders may promise unrealistically favorable terms, only to alter them at the last minute. That’s why working with a well-established, reputable lender with positive Google reviews and referrals is so important.

Always review your closing statement (HUD-1 or Closing Disclosure) carefully to ensure you’re not being overcharged—whether by your lender, title company, or other providers. Don’t hesitate to ask questions. Trust, but verify.

---

How fast can I close?

At New Funding Resources, we can typically close in 10 business days. However, closing quickly requires teamwork: borrower, title company, appraiser, and lender must all move efficiently.

For example, borrowers sometimes request a fast closing but then delay property access for the appraiser—adding days or even weeks to the timeline. Think of it like a domino effect: if one party stalls, the entire process slows.

---

What if my property doesn’t appraise for what I think it’s worth?

There’s always a small chance an appraiser will value the property lower than expected. At New Funding Resources, we minimize this risk by carefully reviewing comparable sales (comps) before issuing a loan commitment.

If we believe the after-repair value is lower than anticipated, we’ll discuss it with you early to pinpoint any discrepancies. Transparency helps you make informed decisions before investing your time and money.

---

What if the lender “lowballs” the after-repair value (ARV)?

Some investors worry that lenders might manipulate the ARV to force them to bring more cash to closing. At New Funding Resources, we have no incentive to do this—we make money by funding loans, not by discouraging deals.

We rely on licensed appraisers who:

• Visit the property
• Measure and inspect it
• Drive by comparable sales in the neighborhood

Their thorough analysis sometimes uncovers issues that affect value. For example, one borrower purchased a home with an “unofficial” addition that was supposed to increase square footage. The appraisal revealed the addition was already included in the official square footage, reducing the projected profit. We advised the borrower to walk away—painful in the moment, but ultimately the right financial move.

---

What if I need more time to finish my project?

Our fix-and-flip loans and buy-and-hold loans generally allow up to 12 months for repayment. However, we know projects can take longer than expected.

• Short extensions (1–2 months): If you’ve been making payments on time and staying current with taxes and insurance, we often extend your loan at no cost as a courtesy.
• Longer extensions: We may grant these formally, sometimes with a modest fee.

The key is communication. Let us know early if you anticipate delays—we want you to succeed.

---

What if I run out of renovation funds?

Running out of money is one of the biggest risks in real estate investing. It usually happens because:

1. The renovation budget was too optimistic.
2. Unexpected issues surfaced (e.g., foundation issues or roof problems).
3. Contractor management became difficult.

Here’s how we help minimize those risks:

• We require reserves. If unexpected costs arise, you’ll have backup funds to keep the project moving.
• We review your scope of work. A padded budget is always safer than an underfunded one.
• We encourage active involvement. The most successful investors are hands-on—monitoring contractors, costs, and timelines.

We also share investor resources, like our blog on estimating your renovation expenses accurately.

---

What if my exit strategy doesn’t work out?

Most borrowers repay hard money loans by either:

• Selling the renovated property (fix-and-flip), or
• Refinancing into long-term financing such as DSCR loans.

Your exit strategy should be mapped out at the very beginning, as it shapes the scope of your rehab. A “rent-ready” project requires fewer upgrades than one targeting retail buyers.

Sometimes, circumstances shift:

• A borrower may choose to refinance rather than reduce their asking price.
• Others planning to refinance may find their credit or income doesn’t qualify them.

When this happens, discuss your options with your private lender. We’ve seen it all and can help strategize the best path forward.

---

What if I need to adjust my draw schedule?

Your draw schedule outlines when and under what conditions construction funds are released. While clarity upfront is essential, construction rarely goes exactly as planned.

As long as your adjustments don’t substantially impact the ARV (for example, deciding not to finish a basement initially included), we at New Funding Resources work with you to accommodate reasonable changes.

For a deeper dive, check out our article on how draw schedules work.

---

Final Thoughts

Private financing is flexible, fast, and tailored for real estate investors in the DMV region. But to protect yourself, you need transparency, communication, and a trusted lending partner.

At New Funding Resources, we pride ourselves on clear terms, fast closings, and helping our borrowers succeed—whether they’re flipping rowhouses in Baltimore, rehabbing condos in Arlington, or adding rental properties in Silver Spring.